Sterling Faces Pressure Amid Inflation and Rate Cut Speculation

The British pound is trading near two-month lows against the U.S. dollar following a decline prompted by weak inflation data, which increased speculation of interest rate cuts by the Bank of England. Investor focus is also on upcoming British budget decisions and European Central Bank policy announcements.

The British pound fell to near two-month lows against the U.S. dollar after subdued inflation figures fueled expectations of interest rate reductions by the Bank of England. Sterling fell by 0.1% to $1.29815, slipping below the critical $1.30 threshold, as data revealed an unexpected drop in inflation rates to their lowest since April 2021.

"Sterling bears are currently probing just below the 1.30 level, reversing the positive trend from April to September and suggesting a shift towards a medium-term bearish consolidation," stated Ipek Ozkardeskaya, a Swissquote Bank analyst. Market sentiment now predicts an 85% chance of a 25 basis point rate cut by the BoE in November, up from 80% prior to the inflation report.

The prior projection that persistent inflation would prompt the BoE to lower rates more slowly than its U.S. and European counterparts had pushed the pound to a two-and-a-half-year high against the dollar in late September. However, robust U.S. data and ongoing Middle Eastern tensions have led to dollar strengthening, pressuring the pound further.

(With inputs from agencies.)